Court may rule on Privatbank nationalization complaint on Oct. 17
The Kyiv Economic Court may announce a verdict on the claim of Ihor Kolomoisky against the nationalization of Privatbank on Oct. 17, the bank's legal adviser Andriy Pozhydayev told Interfax-Ukraine after the court concluded primary hearing on the case on Oct. 8. The court scheduled debates on the case for Oct. 17, after which it can announce its ruling. According to lawyers of the National Bank of Ukraine cited by Interfax-Ukraine, the court refused to open the debates to the public, citing the sensitive content of banking secrets being disclosed.
In this case, the court is studying the claim of Kolomosky and Cypriot company Triantal Investments (both are former shareholders of the bank) to recognize invalid a sales-purchase agreement between the former shareholders and the Finance Ministry concluded on Dec. 21, 2016. Recall, Privatbank was recognized insolvent and transferred to the State Deposit Guarantee Fund on Dec. 19, 2016. After that, the government decided to take control over the bank, as is allowed by Ukrainian legislation. To make that happen, the Fund, on behalf of all the bank's shareholders, signed the agreement to sell 100% of the bank’s equity to the Finance Ministry for a symbolic amount of UAH 1. After the nationalization, the government contributed UAH 155 bln (USD 5.9 bln) to bail in the bank. The nationalization was supported by Ukraine’s financial partners, including the IMF. Meanwhile, all IFIs are demanding the Ukrainian government to do its best to compensate losses at the expense of the former bank’s owners.
Alexander Paraschiy: The ruling on this case will not necessarily be announced on Oct. 17, but there is a certain likelihood that it will happen then. It will be the ruling of a first-tier court, therefore it won’t take effect (unless it’s not appealed, which is almost impossible). However, even with no direct consequences from the court’s decision, the ruling in and of itself will be important for Ukraine’s relationships with IFIs. Namely, a ruling in favor of Kolomoisky will definitely put Ukraine’s negotiations with the IMF on hold, which might have disastrous consequences for the country’s investment case.
So far, it is hard to predict the court’s verdict, but the situation around the bank creates an impression that the ruling will be made in favor of Kolomoisky. First, the court did not satisfy important appeals by the defendants, e.g. to make the hearing or arguments public. Second, the recent resignation of Alex Danylyuk from the position of the secretary of the National Security and Defense Council suggests that he sees little means to protect the state’s position in litigation on Privatbank. Recall, he called the Privatbank case a trigger for his resignation. He also stated before that his presence on the presidential team won’t allow the risks involving Privatbank to materialize.
All in all, we expect demand for Ukraine-related securities will be postponed until Oct. 17, or until any other announcement that will shed light on the prospects of the Kyiv court trial. Most likely, this will result in an upward move of Ukraine’s sovereign yield curve and increased devaluation pressure on Ukraine’s currency over the coming week.